A group of Tory MPs is demanding the Chancellor announce dramatic cuts in income tax and business regulation in the Budget to kickstart growth and outflank the Liberal Democrats.

The Free Enterprise Group of 36 MPs, most of whom were elected in 2010, is calling for George Osborne to pledge now to cut the 50p top rate of income tax before the General Election.

But in an audacious bid to outflank his Coalition rivals on tax, the group wants the Chancellor to claim as his own the policy of raising the threshold at which people pay the basic 20p rate of income tax.

The Free Enterprise Group of 36 MPs is calling for George Osborne to pledge now to cut the 50p top rate of income tax

Many Tories are irritated that Mr Osborne has received little credit for increasing the basic rate threshold in his first two Budgets.

The Tory group – whose objective ‘is to promote the free market in order to boost private enterprise’ – wants the Chancellor to pledge to raise the threshold to £12,500 by the end of the Parliament.

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Nick Clegg and his closest allies have been publicly demanding that he bring forward the Coalition target to increase the threshold to £10,000 by 2015.

The Tories say their measure, which would cost around £16billion, could be paid for by increasing indirect taxes – but point out it would have the virtue of lifting hundreds of thousands of the least well-off out of paying income tax altogether.

The Lib Dems want taxes on wealth and property instead.

Many Tories are irritated that Mr Osborne has received little credit for increasing the basic rate threshold in his first two Budgets. The Prime Minister is pictured yesterday painting at a primary school in Witney, Oxfordshire

The Tories say their measure, which would cost around £16billion, could be paid for by increasing indirect taxes

The ideas will be discussed on Monday when the group holds a growth summit with free market think-tank the Institute of Economic Affairs.

Mr Osborne has signalled his tacit support for the exercise by despatching his Parliamentary aide Sajid Javid to take notes at the meeting. The MPs also want to slash red tape that is deterring businesses from hiring. They are calling for firms with fewer than ten employees to be excluded from unfair dismissal laws to encourage them to create jobs.

The MPs want George Osborne to pledge now to cut the 50p top rate of income tax before the General Election

Currently, small businessmen pay thousands to settle dismissal cases against staff – even when they have legitimate grounds to fire them – rather than risk potentially ruinous costs of an industrial tribunal.

The MPs also want to see regional pay bargaining – under which workers are paid different rates according to where in the country they live – to be introduced in the public sector by next year.

They are calling on the Chancellor to signal in the Budget that he will slash corporation tax to 15 per cent by 2020 as well as an aspiration to cut capital gains tax by the same date.

Mr Osborne has already said he will cut it from the current 26 per cent to 23 per cent by 2014. The group also says the Treasury should simplify the tax system by merging income tax and national insurance, a move Mr Osborne is considering.

On education, they are calling for all pupils to study maths to the age of 18, under proposals that were put forward by television presenter Carol Vorderman in a report for the Tories last year.

Tory sources said the Chancellor was keen to encourage Conservative ‘outriders’ to make the case for a Conservative approach to the Budget after a series of attempts to bounce Mr Osborne into backing Liberal Democrat plans.

Tory MP Kwasi Kwarteng, who has organised the forum, said: ‘This is to help the Government focus on what it is that made Britain such a successful economy in the past and try to get back to a sense of private initiative getting us out of the problems we face.

‘These are traditional Tory ideas that need to be restated after a long period of Labour rule.’